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Target Costing Laser Cast Inc. manufactures color laser printers. Model J20 presently sells for $250 and has a product cost of $200, as follows: Direct materials $140 Direct labor Factory overhead Total It is estimated that the competitive selling price for color laser printers of this type will drop to $240 next year. Laser Cast has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost-reduction ideas: 40 20 $200 1. Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 9 minutes per unit. 2. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $5 per unit. 3. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 40% of the factory overhead are related to running injection molding machines. The direct labor rate is $17 per hour. a. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price are maintained. Round your final answer to two decimal places. per unit b. Determine the required cost reduction. Round your final answer to two decimal places. per unit c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved. Do not round interim calculations but round your final answers to two decimal places. 1. Direct labor reduction $ per unit 2. Additional inspection per unit 3. Injection molding productivity improvement per unit Total savings $ per unit

Target Costing Laser Cast Inc. manufactures color laser printers. Model J20 presently sells for $250 and has a product cost of $200, as follows: Direct materials $140 Direct labor Factory overhead Total It is estimated that the competitive selling price for color laser printers of this type will drop to $240 next year. Laser Cast has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost-reduction ideas: 40 20 $200 1. Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 9 minutes per unit. 2. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $5 per unit. 3. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 40% of the factory overhead are related to running injection molding machines. The direct labor rate is $17 per hour. a. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price are maintained. Round your final answer to two decimal places. per unit b. Determine the required cost reduction. Round your final answer to two decimal places. per unit c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved. Do not round interim calculations but round your final answers to two decimal places. 1. Direct labor reduction $ per unit 2. Additional inspection per unit 3. Injection molding productivity improvement per unit Total savings $ per unit

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Target Costing Laser Cast Inc. manufactures color laser printers. Model J20 presently sells for $250 and has a product cost of $200, as follows: Direct materials $140 40 Direct labor Factory overhead Total 20 $200 It is estimated that the competitive selling price for color laser printers of this type will drop to $240 next year. Laser Cast has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost-reduction ideas: 1. Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 9 minutes per unit. 2. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $5 per unit. 3. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 40% of the factory overhead are related to running injection molding machines. The direct labor rate is $17 per hour. a. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price are maintained. Round your final answer to two decimal places. per unit $ b. Determine the required cost reduction. Round your final answer to two decimal places. per unit c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved. Do not round interim calculations but round your final answers to two decimal places. 1. Direct labor reduction 2. Additional inspection 3. Injection molding productivity improvement Total savings $ $ $ $ per unit per unit per unit per unit
Transcribed Image Text:Target Costing Laser Cast Inc. manufactures color laser printers. Model J20 presently sells for $250 and has a product cost of $200, as follows: Direct materials $140 40 Direct labor Factory overhead Total 20 $200 It is estimated that the competitive selling price for color laser printers of this type will drop to $240 next year. Laser Cast has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost-reduction ideas: 1. Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 9 minutes per unit. 2. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $5 per unit. 3. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 40% of the factory overhead are related to running injection molding machines. The direct labor rate is $17 per hour. a. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price are maintained. Round your final answer to two decimal places. per unit $ b. Determine the required cost reduction. Round your final answer to two decimal places. per unit c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved. Do not round interim calculations but round your final answers to two decimal places. 1. Direct labor reduction 2. Additional inspection 3. Injection molding productivity improvement Total savings $ $ $ $ per unit per unit per unit per unit
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